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Uber plan highlights SoftBank's addiction to debt

SoftBank's debt wizards have found new ingredients to chuck in their finance cauldron.

[HONG KONG] SoftBank's debt wizards have found new ingredients to chuck in their finance cauldron. A report that they might raise funds against semiconductor subsidiary ARM or a newly purchased 15 per cent stake in Uber sounds entirely plausible: the hyperactive Japanese group does whatever possible to maximise financial firepower.

SoftBank is talking to banks about borrowing US$5 billion against ARM, technology news service The Information said this week, citing people familiar with the matter. The report added that Masayoshi Son's US$93 billion tech and telecoms outfit is considering raising capital from the shares in Uber, the US ride-hailing giant.

Nothing is official, nor is it clear how long-term any borrowing would be. The Information suggests ARM proceeds could tide SoftBank over as it awaits US approval to transfer Uber shares to investment vehicles run by its US$98 billion SoftBank Vision Fund segment. So this could be merely a clever stopgap.

Still, the notion broadly fits in with Mr Son's modus operandi. The listed parent is an avid borrower. Gross debt was 5.7 times Ebitda (earnings before interest, taxes, depreciation and amortisation as at June, according to Moody's Investors Service. And SoftBank's army of in-house bankers uses all kinds of funky financing to conjure up funds.

The Vision Fund is the most inventive, but SoftBank has also created securities exchangeable into Alibaba stock, and sold scads of equity-like hybrid bonds. US telecoms unit Sprint has sold bonds backed by mobile spectrum. Another recent report suggested Mr Son might float the Japanese mobile business in order to unlock US$18 billion and seed a second Vision Fund with the proceeds.

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ARM, as a standalone unit that was until recently public, should be a relatively straightforward proposition for lenders. Borrowing against shares in a startup such as Uber would be unorthodox, but the line between listed companies and huge private tech firms has blurred of late. The latter now have more numerous investors and reveal some financial details.

But SoftBank is complicated enough already. Remortgaging ARM would add yet another wrinkle. Suppose for some reason its performance tanked: banks might demand cash from the parent, or seize shares as collateral. As ever, extra layers of leverage magic add fresh complexity and risk.

Japan's SoftBank is in talks with banks to raise as much as US$5 billion in debt, using British chip-design subsidiary ARM as collateral, technology news website The Information reported on Jan 23, citing people familiar with the matter. SoftBank is also considering how it might use its newly acquired 15 per cent stake in Uber to raise additional capital, one of the people said.

The money raised using ARM might be used to cover the costs of the US$7.7 billion investment in Uber, The Information added. SoftBank plans to transfer the Uber stock to its tech investment vehicle, the Vision Fund. However, the news service said that SoftBank may need short-term funding for the purchase while it awaits approval from the Committee on Foreign Investment in the United States.

SoftBank shares stood 0.9 per cent lower by late morning in Tokyo on Jan 25, at 9,326 yen per share.


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